FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 03 April 2016

Updated Budget Projections Through 2026 - The Deficit Would Increase To 4.9 Percent Of GDP

from the Congressional Budget Office

CBO projects a $534 billion deficit in fiscal year 2016, about $100 billion more than in 2015. If current laws generally remained unchanged, the deficit would increase from 2.9 percent to 4.9 percent of GDP over the next decade.

As it typically does after the President's budget is released, CBO has updated the 10-year baseline budget projections it published early in the year. CBO now estimates that if no further legislation is enacted this year that affects the federal budget, the total federal deficit for fiscal year 2016 will be $534 billion, about $100 billion greater than the shortfall posted in fiscal year 2015. If current laws generally remained unchanged, the deficit would increase (in dollar terms) in nearly every year over the next decade and, CBO projects, by 2026 it would be considerably larger as a share of the nation's output (gross domestic product, or GDP) than its average over the past 50 years (see figure below). Debt held by the public also would rise significantly from its already high level, reaching 86 percent of GDP by 2026.

Total deficits and surpluses

Growing Deficits Are Projected to Drive Up Debt

This year is likely to be the first since 2009 in which the federal deficit will increase as a share of the nation's output - from 2.5 percent of GDP in 2015 to 2.9 percent in 2016, by CBO's estimate. That growth in the deficit will result in part from a shift in the timing of some federal payments from the beginning of fiscal year 2017 to the end of 2016 because October 1, 2016 - the first day of fiscal year 2017 - falls on a weekend. Without that shift of an estimated $41 billion in payments, the deficit projected for 2016 would be $493 billion, or 2.7 percent of GDP.

In CBO's baseline, deficits rise because growth in revenues over the next 10 years is outpaced by increases in spending - particularly for Social Security, Medicare, and interest payments on the federal debt. The deficit remains at roughly 2.8 percent of GDP through 2018 but climbs to 4.9 percent of GDP by 2026. The cumulative deficit projected for the 2017 - 2026 period is $9.3 trillion.

One important effect of such deficits would be a burgeoning amount of debt held by the public. In 10 years, debt held by the public would equal 86 percent of GDP - more than twice its average over the past five decades. Debt that high - and heading higher - would have significant negative budgetary and economic consequences (see figure below):

  • Once interest rates returned to more typical, higher levels, federal spending on interest payments would increase substantially.

  • Because federal borrowing reduces national saving over time, the nation's capital stock ultimately would be smaller, and productivity and total wages would be lower, than would be the case with lower debt.

  • Lawmakers would have less flexibility to use tax and spending policies to respond to unexpected challenges.

  • The probability of a fiscal crisis in the United States would increase. Specifically, the risk would rise of investors' becoming unwilling to finance government borrowing unless they were compensated with significantly higher interest rates. If that occurred, interest rates on federal debt would rise suddenly and sharply relative to rates of return on other assets.

Federal debt held by the public

Beyond the 10-year period, if current laws remained in place, the pressures that contributed to rising deficits during the baseline period would build, and the consequences would be even more severe. Under those circumstances, debt held by the public three decades from now would constitute 155 percent of GDP, a far larger percentage than any recorded in the nation's history.

Changes Since January Are Relatively Small

CBO currently projects a deficit for 2016 that is $10 billion (or 2 percent) lower than the amount it projected in January - estimated outlays have been reduced by $22 billion and revenues by $12 billion. The cumulative 10-year deficit projection has dropped by $95 billion (or 1 percent), mostly as the result of a $79 billion increase in projected revenues.

Those changes stem largely from the agency's full incorporation of the economic forecast it published in the January 2016 volume, The Budget and Economic Outlook: 2016 to 2026. (Last-minute changes to that forecast to reflect major legislation enacted in December and economic developments through the end of that month could not be incorporated into the January budget projections published in that volume.) Those economic revisions involved changes in corporate profits relative to GDP, among other factors, and they reduced the cumulative projected deficit for the 2017 - 2026 period by $168 billion. Other, technical, updates partially offset the revisions resulting from changes in the economic forecast. Legislation enacted since January has had a negligible effect on CBO's projections of revenues and outlays.

[read the entire report]

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Is Free Trade Harming the Economy?
Bank of England Endorses Post-Keynesian Endogenous Money Theory
News Blog
The Psychology Behind Trump's Awkward Handshake ... And How To Beat Him At His Own Game
Most Lawsuits Against Trump Related To Travel Ban
Average Gasoline Prices for Week Ending 20 February 2017 Statistically Unchanged
Explainer: Trickle-down Economics
How The United States Is Governed
What We Read Today 21 February 2017
Wife Of Soldier Kisses His Flag-Draped Coffin: It Was Heartbreaking
The Age Of The Employee-less Employer
Projected Costs Of U.S. Nuclear Forces, 2017 To 2026
63.4% Homeownership Rate In 2016 Was Lowest Since 1966
The Homeownership Gap Is Finally Closing - Part Four Of Five
Infographic Of The Day: The Best And Worst Financial Decisions People Make
Early Headlines: Asia Stocks Mixed, Oil Mixed, Dollar Up, Gold Down, Microsoft Growth, US Cities' Homicides Up, Battery Age, Higher-Priced Carbon, Sweden Crime Data, Russia Passes Saudi Arabia And More
Investing Blog Technical Summary 21 February 2017
Market And Sector Analysis 19 February 2017
Opinion Blog
The Blame Game
Fascism Defined And Described By Oswald Mosley
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
21Feb2017 Market Close: New Record Highs, Crude Slips Off Session Highs, US Dollar Settles Near Highs
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved